1968 (5) TMI 11 - HC - Income Tax

Income escaped assessment - held that it was open to the ITO to issue notices u/s 34 of the IT Act 1922 for the asst. yrs. 1946-47 to 1949-50 and make assessment in pursuance of the notices in spite of the fact that the assessee had already filed returns for those assessment years on Nov. 18 1950

Summary

Issues Involved:
1. Validity of notices under Section 34 of the Indian Income-tax Act, 1922.
2. Limitation period for assessment orders made under Section 34.

Detailed Analysis:

Issue 1: Validity of Notices under Section 34
The primary issue was whether it was permissible for the Income-tax Officer to issue notices under Section 34 for the assessment years 1946-47 to 1949-50 despite the assessee having already filed returns for those years on November 18, 1950.

The court noted that the assessee had indeed filed returns for the relevant assessment years, but the Income-tax Officer had taken no action on these returns initially because he believed the income was assessable in the hands of the parent Hindu undivided family. The period of limitation for making an assessment under ordinary jurisdiction had expired by March 4, 1955. Therefore, the only recourse available to the Income-tax Officer was to invoke his extraordinary jurisdiction under Section 34.

The court distinguished this case from the Supreme Court decision in Commissioner of Income-tax v. Ranchhoddas Karsondas, where the Income-tax Officer initiated proceedings under Section 34 while still within the ordinary jurisdiction period. Here, the court concluded that income had escaped assessment because the Income-tax Officer was barred by the period of limitation from making an assessment order for the years in question. Thus, the court answered the first question in the affirmative, validating the notices issued under Section 34.

Issue 2: Limitation Period for Assessment Orders
The second issue was whether the notices issued and the subsequent assessment orders were within the limitation period prescribed by Section 34(3).

The court observed that the notices should have been served within four years from the end of the relevant assessment years, but they were served beyond that period. The Commissioner argued that the second proviso to Section 34(3) removed the bar of limitation for taking assessment proceedings against any person in consequence of or to give effect to a direction contained in the appellate order relating to the parent Hindu undivided family. However, the Supreme Court had held in S. C. Prashar v. Vasantsen Dwarkadas that the second proviso to Section 34(3) was ultra vires to the extent it permitted assessment proceedings against a person other than the assessee.

The court emphasized that it was bound by the Supreme Court's decision, which declared the second proviso to Section 34(3) as unconstitutional in relation to persons other than the assessee. Consequently, the court held that the notices issued under Section 34 for the four assessment years were barred by limitation, and therefore, the assessment orders made in pursuance of those notices were also beyond limitation. The second question was answered in the negative.

Additional Observations:
The court also addressed a submission regarding res judicata, raised on behalf of the assessee, based on a petition filed by another branch of the parent Hindu undivided family. The court dismissed this plea, noting that the parties were not the same, which was sufficient to defeat the argument.

Conclusion:
- Question No. 1: Answered in the affirmative.
- Question No. 2: Answered in the negative.

The court made no orders as to costs.